Resellers under scrutiny in Microsoft piracy case

A four day copyright infringement trial has produced evidence that may implicate at least three resellers in illegal activities aimed at circumventing Microsoft’s strict software licensing regime.

A four day copyright infringement trial has produced evidence that may implicate at least three resellers in illegal activities aimed at circumventing Microsoft's strict software licensing regime.

A case brought by Microsoft Australia against PC-Club Australia in the Federal Court of NSW revealed on Friday November 5 that a number of Hyundai computers had been put up for sale with stolen and pirated copies of Microsoft software pre-loaded.

Evidence in the case suggested that three resellers - PC-Club Australia, Silver Alien Consulting and ITR Vision - had been engaged in activities that directly led to the selling of illegally acquired Microsoft software.

David Lee, sales and marketing director and de facto managing director at Rhodes-based PC-Club Australia, told the court under cross-examination that he had not known at the time that some of the Microsoft Office software loaded on to computers he resold was stolen property.

Customers had complained when attempts to activate the Microsoft Office software – which Lee had obtained from Steven Chung, Lee's brother-in-law and an employee at reseller ITR Vision – had failed.

James Lawrence, a Mallesons Stephen Jaques lawyer from Microsoft's legal team, asked Lee: "Were you aware that the activation codes had been cancelled because the product had been stolen in a robbery?" Lee answered that he had not.

However, he also admitted that the notebook assembler had been loading copies of Windows XP on to Hyundai computers and providing restore CDs, neither of which had been obtained through authorised channels.

But Lee claimed he did not know that copying Windows XP software from his own master disk, using PC-Club Australia duplication equipment, was illegal.

Lee admitted that he had bought some 300 COA labels from Stephen Bradley, of Sydney-based Silver Alien Consulting, that would enable him to authenticate the copied software using Microsoft's online software registration system.

Bradley had told him the COA labels were excess stock from authorised distributor IBM, so he had believed they were legitimate, Lee said.

Lawrence alleged that Lee had signed contradictory affidavits, one of which had suggested Lee had been well aware the Microsoft Office software might have been stolen. “No, I did not,” Lee said.

Lawrence said Lee had also signed affidavits claiming PC-Club Australia only acquired Microsoft software from authorised distributors and sub-distributors. Yet PC-Club Australia sale invoices had proved that was not the case, Lawrence maintained.

“Yes [I had signed those affidavits], but that was incorrect,” Lee said. “We hadn't collected all the details of all the purchasing histories at that time.”

Lawrence further pointed out that the sales invoices produced showed that PC-Club Australia had not passed on any expected savings in the price of the pirated and stolen software to its customers.

PC-Club Australia conceded in court on Friday that it had supplied more than 2000 PCs loaded with Windows XP Home with counterfeit Microsoft certificates of authenticity attached.

That suggested PC-Club Australia had a motive for deliberately circumventing Microsoft's authorised licensing program to boost its own profits, Lawrence alleged.

Lee also revealed under further cross-examination that he had conversations with other Hyundai resellers seeking to obtain Microsoft software – such as Windows XP Home, and Microsoft Office – more cheaply.

Those resellers included representatives from Lifestyle Brilliance Australia, United Electrical and Hyundai Digital, Lee said.

Conversations between Lee and other Hyundai resellers indicated Lee and other resellers had been exploring ways to cut the cost of complying with Microsoft's current software licensing regime.

Sydney reseller Lifestyle Brilliance Australia had had such conversations with Lee. An affidavit submitted to the court by Lee said that Lifestyle Brilliance Australia had discussed with him the possibility of purchasing COA labels from Silver Alien Consulting.

A Ms Wong from Lifestyle Brilliance Australia had then approached a Microsoft representative, asking whether such a way of supplying software to its customers was legitimate. “That's not true,” Lee said.

Lawrence said: “I put it to you that she did ask that, and in your hearing. And Mr Knox [from Microsoft] said, 'no, you can't'.”

However, no evidence was presented to the court suggesting that Lifestyle Brilliance Australia had done any more than talk about the possibility of such a transaction, whether with Microsoft or anybody else.

Aron Jackson, CEO at Hyundai MultiCAV, had signed affidavits for the trial discussing conversations and business trips involving Lee and himself where the pair had discussed ways to buy Microsoft software more cheaply.

Jackson had claimed that Lee had told him that PC-Club Australia was supplying about 700 to 1000 PCs a month. Other witnesses had also said Lee claimed to be building some 800 to 1000 PCs a month.

PC-Club Australia had not bought anything like that number of Microsoft XP software from Microsoft, Lawrence alleged.

But that figure was simply a forecast, Lee said, and PC-Club Australia had not been supplying anything like that number.

David Lee is officially only the sales and marketing director of PC-Club Australia. However, Lee's family, via sister My My Lee, is the financial guarantor of PC-Club Australia through holding company DAT Property Investment Group.

My My Lee is the major shareholder of DAT Property Investment Group.Prior to starting PC-Club Australia with Taiwanese business partner Kane Fang, David Lee ran a similar reseller called DAT Computers. Microsoft successfully sued DAT Computers for copyright infringement in 1999.

A spate of NSW computer thefts - including a break-in and a truck hijacking - earlier this year resulted in more than $700,000 of product vanishing from the inventories of Hyundai resellers Global Trading Industries (GTI) and its notebook assembler, PC-Club Australia.

A large proportion was hardware, including Hyundai notebooks, but it has never been publicly revealed if any of the stolen property has ever been found.

At the time of the theft, Ed Reynolds, chairman of Jackar Holdings – the group which controls Hyundai MultiCAV – alleged that some 680 of Hyundai notebooks stolen in those thefts were either grey imports or possibly even fakes.

While PC-Club Australia was a legitimate Hyundai assembler, no order of that size had been received by Hyundai MultiCAV, Reynolds told CRN at the time.

A related distributor, Hyundai International, had also released a statement at that time alleging the stolen notebooks were counterfeit.

All evidence has now been presented in the case and a judgement is expected by the New Year.

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